Part one of a two part series on suspected and actual gold and silver price manipulation.

Circumstantial Evidence of Gold and Silver Manipulation

Gold and silver investors constantly point to manipulation in the precious metals markets. They cite large amounts of seemingly senseless naked short selling that drives the price down. The Federal Reserve (the Fed) is the prime potential suspect of the manipulation because the Fed doesn’t like rising gold prices as they have a psychological impact that undermines the value of and confidence in the dollar.

Sound like a gold bug conspiracy theory? Once you realize, however, that it is an accepted practice for the Fed to fix (manipulate) interest rates and the price of money by setting interest rates and actually printing dollars (counterfeiting) to participate in the bond markets in order to achieve artificially low interest rates, the idea that they might also manipulate the gold and silver markets makes eminent sense.

After all, why would the Fed go through all the trouble to print $4 trillion as part of its quantitative easing program (QE) only to see the gold and silver markets soar and the dollar plummet, thereby undermining their dollar printing scheme?

For interest rate fixing to work, the precious metals markets need attending to as well.

Gold Price Manipulation

Gold Manipulation on Comex

Doctor Paul Craig Roberts, former Secretary of the Treasury for Economic Policy under Ronald Reagan, suspects that the Fed once sold and or leased physical gold to drive the price down. Dr. PCR speculates that the Fed ran out of physical gold around 2011, and then turned to naked short selling of gold to suppress the gold price. Dr. PCR claims that the Fed sells massive amount of Comex gold futures, which are “dropped like bombs on the Comex floor” to drive down the price of gold.

“After rallying over $15 in the Asian and European markets, the price of gold suddenly plunged $35 at 10:14 a.m. In a space of less than 60 seconds, more than 12,000 contracts traded – equal to more than 10% of the day’s entire volume during the 23 hour trading period in which gold futures trade. There was no apparent news or market event that would have triggered the sudden massive increase in Comex futures selling which caused the sudden steep drop in the price of gold. At the same time, no other securities market (other than silver) experienced any unusual price or volume movement. 12,000 contracts represents 1.2 million ounces of gold, an amount that exceeds by a factor of three the total amount of gold in Comex vaults that could be delivered to the buyers of these contracts.”

Dr. PCR notes that the manner in which massive amounts of futures contracts are dumped on the market defies common trading sense as anyone looking to unwind a large position would not sell such a large amount in such a short period of time. A trade of that nature will ensure the worst possible price and a loss. Only an entity that has an interest in a declining gold price, rather than its own trading profits would engage in such types of trades. Dr. PCR suspects that trading entity has been the Fed acting through one of the major gold futures trading banks like J.P. Morgan.

Dr. PCR also asserts that the Fed manipulates gold through the London Bullion Marketing Association (LBMA) physical gold market. The LBMA is comprised of several large bullion banks who make a market in physical gold. They include: Barclays, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JPMorganChase, Merrill Lynch/Bank of America, Mitsui, Societe Generale, Bank of Nova Scotia and UBS. The LBMA is where the largest trades of physical gold take place.

Doctor PCR surmises that the bullion banks acting on Fed orders sell large amounts of physical gold on the LBMA market. Purchasers of large amounts of physical gold may include, central banks, institutional clients or individual investors. On the LBMA, unlike most Comex trades, settlement takes place in physical bullion. Doctor PCR suspects that much of the delivery of physical gold is done via “borrowing” other clients’ gold held by the bullion banks and looting the gold trusts such as the ETF GLD for which HSBC acts as custodian.

Through such leasing arrangements physical gold is made available for delivery in amounts that would not be otherwise available at the existing prices. Market purchases for large amounts of physical bullion would normally increase the price, but leasing allows the existing gold held by the bullion banks to be resold without having to purchase additional bullion to satisfy the delivery requirement. Thus, through leasing, gold can be sold to lower the price or used to satisfy large buy orders such that the price does not rise.

The German gold repatriation request and subsequent events raised two issues – did the Fed still have Germany’s gold and was Germany losing confidence in the European Monetary Union and the Euro?

Germany’s requested anticipated a repatriation of a total of 674 tons of gold from the Fed and the French Central Bank. The Fed informed Germany that they could not inspect their gold and that their gold would be delivered over a period of 8 years, raising eyebrows why it would take so long to make the requested repatriation.

A year after the original request Zero Hedge reported that Germany had received just 37 tons, or about 5% of the 674 tons requested. Curiously, only five tons were delivered by the Fed with the other 32 tons coming from Paris. The five tons of gold delivered to Germany were different gold bars than the ones that Germany had placed on deposit with the Fed a few decades earlier.

The circumstances surrounding Germany’s gold repatriation request caused many to question whether the Fed indeed still held ANY of Germany’s gold.

In June 2014, however, according to a Bloomberg news report, Germany suddenly dropped its gold repatriation request. “The Americans are taking good care of our gold,” said Norbert Barthle, the budget spokesman for Germany’s Christian Democratic party.

Peter Boehringer, one of the initiators of Germany’s Repatriate Our Gold campaign disputed the story and claiming that the Bloomberg story gave “no proof whatsoever re the untouched whereabouts of the German gold” and that they are in “no way satisfied with the current status” of the repatriation of Germany’s gold.

Irrespective of the veracity of the Bloomberg report, it appears that Germany’s gold has gone to the same place where the IRS and Lois Lerner’s emails have gone.

Fed to Germans:We are all reasonable manipulators,this gold request of yours,it’s bad for business. Germans drop it http://t.co/RAoM83moB4

In addition to the alleged manipulation in the trading of precious metals on the Comex and LBMA markets, manipulation is also purportedly accomplished in the setting or fixing of the gold and silver prices by official price fixing bodies dedicated to each metal. Gold and silver manipulation is out in the open. Indeed, each metal has its own official price fixing body.

The London Gold Fixing Company follows an archaic practice whereby five banks set the price of gold twice daily following a private conference call by representatives of Barclays Plc, Deutsche Bank AG (DBK), Bank of Nova Scotia (BNS), HSBC Holdings Plc (HSBA) and Societe Generale SA (GLE), all members of the LBMA.

Indeed, a study by Professor Rosa Abrantes-Metz of New York University’s Stern School of Business and Albert Metz, a managing director at Moody’s Investors Service, released in February 2014 found unusual trading patterns around 3 p.m. in London, when the gold afternoon fix is set and showed signs of collusive behavior.

The study found, starting in 2004 through 2013, there were large price moves during the 3 PM call that did not happen with the same frequency during the morning call. Two thirds of the large price moves from 2004-2013 during the 3pm call were down. In 2010, large moves during the 3pm call were down 92 percent of the time.

“The structure of the benchmark is certainly conducive to collusion and manipulation, and the empirical data are consistent with price artificiality,” the report said. “It is likely that co-operation between participants may be occurring.”

“This is a setting that is very easy to be manipulated either by one individual bank or by a group of them,” said Rosa Abrantes-Metz, “It completely lacks oversight and involves a very small group of competitors, so it is easy to co-ordinate behaviour,” she said.

In January 2014, following an announcement by Germany’s regulator Bafin that precious metals price manipulation was worse than LIBOR, Deutsche Bank AG announced its decision to leave the gold and silver price fixing bodies. Deutsche Bank AG resigned from its gold fixing seat in April 2014 after failing to find a buyer to replace it.

The London Silver Fixing Company was established in 1897 and followed the similar archaic practice of the London Gold Fixing Company whereby three banks set the price daily at noon following a conference call by representatives of Barclays PLC, HSBC Holdings PLC and Deutsche Bank AG (the same bullion banks mentioned above).

A replacement bank for Deutsche Bank has not been appointed and the London Silver Fixing Company currently operates with just two banks.

If manipulation of the precious metals markets appears to be SO obvious how come nothing is done about it? Are regulators asleep at the switch?

Precious metal manipulation has hit the radar screens of regulatory bodies with respect to the gold and silver fixing bodies and markets and there has been a case against J.P. alleging silver price fixing.

While noting that the London Gold Fixing Company structure was perhaps conducive to manipulation, David Bailey, the head of market infrastructure and policy at the FCA told the Members of the UK House of Commons Treasury Select Committee “It is possible, but I have no clear evidence that that has actually happened.”

Following Mr. Bailey’s comments members of the Treasury Select Committee urged the FCA to probe further. “If this evidence is even half true, the regulators need to find a way of acting much more quickly,” Andrew Tyrie, chairman of the committee said. “Were they to conclude that their powers are inadequate, they should tell parliament.”

John Mann, Labour MP added. “This is a flawed and manipulable market that needs to be sorted out by yourself,” he told Mr. Bailey. “Why don’t you come to us and say: ‘It’s open to abuse, this system needs to change.’?”

Other regulatory bodies and analysts have also noted the blatant manipulation of the precious metals markets.

In June 2012 UK bank Barclays admitted its role in rigging the London interbank offered rate, or Libor and agreed to pay $450 million to settle allegations. In 2013, U.S. Banks JPMorganChase and Citibank, Germany’s Deutsche Bank, the Royal Bank of Scotland and others were fined for also allegedly rigging Libor.

In January 2014, Germany’s top financial regulator Bafin said that manipulation of prices for precious metals is worse than the Libor-rigging scandal.

Bafin interviewed Deutsche Bank employees as part of its probe of potential manipulation of gold and silver prices. Shortly after the initiation of the Bafin probe, Deutsche Bank announced its intention to resign from the Gold and Silver Fixing Companies.

As of the date of this post, Bafin has made no further comments or announcements regarding precious metal manipulation.

In February 2014, the Financial Times reported that Fideres, an international consultancy firm, found that “global gold prices may have been manipulated on 50 per cent of occasions between January 2010 and December 2013”. The Financial Times subsequently removed the article, but Zero Hedge retained a copy of it and republished it here.

The U.S. Commodity Futures Trading Commission – The CFTC on The London Gold Fix

Following the revelations of massive LIBOR manipulation, the CFTC began to scrutinize the London Gold Fix. Commissioner Bart Chilton noted: “The idea that pervasive manipulation, or attempted manipulation [of interest rates], is so widespread should make us all query the veracity of the other key marks,” “What about energy, swaps, the gold and silver fixes in London and the whole litany of ‘bors’?”

In April 2014 Steve Adamske, a spokesman for CFTC, declined to comment on the status of their finding on the London Gold Fix.

The Commodity Futures Trading Commission (CFTC) began looking into potential silver price-fixing in 2008, and two years later proposed regulations to give it greater power to stop the practice.

Former CFTC Commissioner Bart Chilton Was Convinced of Manipulation

Commodity Futures Trading Commissioner Bart Chilton stated at a 2010 hearing in Washington that there had been repeated attempts to influence the price of silver.

“There have been fraudulent efforts to persuade and deviously control that price,” said Commissioner Bart Chilton at a hearing in Washington in 2010, alleging illegal silver price manipulation in violation of the Commodity Exchange Act. “Any such violation of the law in this regard should be prosecuted,” he said.

“We’re looking at it. When we see large moves, like with the hack attack, that’s something that should raise our antennas. And I’m concerned about what we’ve seen recently in gold and silver. When I have people send me e-mails and say, “Watch tomorrow at a certain time; the price of X is going to go down,” and it happens, that’s not just happenstance. And that makes me think we need to do a better job of investigating these things and insuring that there’s not outright manipulation. But I can’t really comment further on it at this point.”

Much of the information that Mr. Chilton’s relied upon relating to alleged precious metals manipulation came from metals trader Andrew McGuire. Mr. McGuire explained in emails to the CFTC’s Enforcement Division that he had been told first hand by JP Morgan traders how and when they were going to take down the price of silver or gold.

In one example, in February 2010 Mr. McGuire gave the CFTC two days’ warning by e-mail that the precious metals would be attacked upon the release of the non-farm payroll data. When the non-farm payroll was released the market events played out exactly as Mr. McGuire had warned.

Whistle Blower Andrew McGuire Attacked After Testimony

A month later, Mr. McGuire was involved in a bizarre traffic incident in which his car was struck by another car. When a witness tried to block the other driver’s escape, the driver accelerated at him. The driver’s car then struck two other cars in escaping and was finally caught by police after a high speed pursuit involving helicopter backup.

CFTC Finds No Evidence of Wrong Doing in the Silver Market

In September 2013, the CFTC announced “Based upon the law and evidence as they exist at this time, there is not a viable basis to bring an enforcement action with respect to any firm or its employees related to our investigation of silver markets.”

Mr. Chilton announced his intention to resign from the CFTC in November 2013 and officially left his position in March 2014.

The JPMorgan Silver Manipulation Case

In 2010, investors emboldened by what they thought was strong evidence (some of it from Mr. McGuire), sued JP Morgan on charges of manipulating and artificially suppressing the silver futures market.

The case was finally decided in March 2014 in favor of JP Morgan. The court held that the investors’ contention that JP Morgan intended to manipulate the silver market by taking large and uneconomic short positions was not evidence of an intention to manipulate the market.

“An inference of intent cannot be drawn from the mere fact that JPMorgan had a strong short position,” the panel said.

The Proximity of the Fed’s and JPMorganChase’s Underground Vaults In New York City

The Federal Reserve and JPMorganChase (who have a seat on the NY Fed board) each operate bullion vaults in New York City. The Fed’s Vault and JPMorganChase’s vault are adjacent to each other leading some to speculate than an underground tunnel connecting the two vaults exists that would allow a shell game of moving gold colusively between the two vaults to act as decoy to clients requesting to see their gold.

Some suspect there is a tunnel connecting the adjacent Federal Reserve and JP Morgan vaults

We have seen suspicious circumstances, allegations, investigations and even a court case regarding gold and silver price manipulation, and to date all have come up short in finding any actionable activity involving gold or silver manipulation.

So it’s all a bunch of tin hat gold bug conspiracy theories. Right?

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In Part 2 we will provide concrete examples -not inferences or conspiracy theories – of admitted, actual and legally authorized gold and silver price manipulation.

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